Elon Musk-led social media company Twitter faces yet another lawsuit concerning unpaid bills from six companies. The California-filed case comes after the alleged failure to pay a vendor named Writer, Inc.—a startup business that becomes the sixth company to sue Twitter.
Musk took over Twitter four months ago. Since then, the company has started dwindling after the $44 billion deal was enacted. Currently, Twitter continues to function as an entity with fewer employees than when it first started.
Six Lawsuits and a Bird
Like the latest lawsuit filed against the social media company, Twitter failed to pay bills from five other companies, including Columbia REIT, Private Jet Services Group, Blueprint Studios Trends, Innisfree M&A, and an analysis group that provided service to the company before Musk took over.
The first problem leads to Columbia REIT defaulting on building loans, including where Musk holds office at 650 California St., in San Francisco. Meanwhile, Twitter also faces other behind payments inside the company itself, cutting off employees from the workplace chat application Slack, owned by Salesforce.
Is an AI Company Suing Twitter?
Writer, Inc., previously known as Qordoba, is an AI company dedicated to helping businesses create content, meeting client standards for brand, copy, and other style guidelines. The company sued Twitter for failing to settle dues amounting to $113,856.
However, Twitter’s Vice President of Product, Trust, & Safety, Ella Irwin, states, “We do not comment on pending litigation or various speculation surrounding Twitter’s financial health,” to CNBC via email.
Are Lawsuits a Red Flag to Companies?
Edith Hotchkiss, Boston College Finance Professor, weighs in on the disputes. Hotchkiss states that non-payment disputes are common after a buyout, similar to how Musk acquired the billion-dollar company. “More typical of companies that are within a very short window of filing for bankruptcy,” she adds.
Meanwhile, John T. White, a Vanderbilt University Finance Professor, agreed that the moves were unusual. The litigation over non-payment to vendors can result from “incorrect and aggressive capital structure,” he says.
“Using more debt and less equity reduces the amount of liquid cash Musk and his equity co-investors had to contribute at closing, which can potentially generate a higher internal rate of return if the company turns out to be profitable,” White said.
The Future of Twitter
Meanwhile, Twitter continues to suffer despite the numerous cost-cutting measures, including layoffs and cutbacks on perks and infrastructure. It struggles to work on generating positive cash flow to pay its obligations. If the situation continues, White claims it will become a red flag as the company will likely end up financially distressed.
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